The Turnbull Government is protecting the hard-earned retirement savings of millions of Australians by introducing new measures to guard against the undue erosion of superannuation balances through excessive fees and inappropriate insurance arrangements.
The Protecting Your Super Package — announced today in the Commonwealth Budget and due to commence on 1 July 2019 — will, for the first time, proactively reunite Australians with their low balance, inactive super through the existing Australian Taxation Office (ATO)-led account consolidation regime.
In 2015-16 there were around 9.5 million super accounts with balances of less than $6,000. The Government will act to protect accounts like these from excessive erosion by capping administration and investment fees on these accounts at three per cent annually. This change will prevent the application of hundreds of millions of dollars of fees on these accounts.
The Government will also ban exit fees for all superannuation accounts. Exit fees cost superannuation members around $37 million in 2015-16, simply to close an account with a super fund. This ban is a significant win for the many Australians who want to rollover their accounts to a different fund, or who hold multiple accounts and see exit fees as a barrier to consolidating their accounts.
Tailoring insurance arrangements in superannuation
Australians should not be defaulted into insurance they cannot claim on, or which is significantly beyond what they need.
The Government will tailor insurance arrangements in super by ensuring that cover is offered on an opt-in basis for accounts of young members below the age of 25, inactive accounts that have not received a contribution in 13 months (where the member has not elected to retain existing cover), and low balance accounts below $6,000.
Based on the most recent data, around 5 million individuals will have the opportunity to save an estimated $3 billion in insurance premiums by choosing to opt-in to this cover, rather than paying for it by default.
The Government will also consult publicly on ways in which the current policy settings could be improved to better balance the priorities of retirement savings and life-risk insurance cover within super.
Reuniting your super
The Government's Protecting Your Super Package also benefits Australians with multiple superannuation accounts by supercharging the ATO's account consolidation regime to proactively reunite lost and low balance inactive accounts.
All inactive superannuation accounts with balances below $6,000 will be transferred to the ATO to protect them from further erosion. The ATO will use sophisticated data-matching processes to reunite these accounts with a member's active account where possible. This measure will include the proactive payment of lost accounts already held by the ATO.
This new system is expected to send $6 billion of superannuation back to 3 million members' active superannuation accounts in 2019-20.
Together, these measures build on the Government's overarching reform agenda for superannuation – an agenda that is focused solely on improving outcomes for superannuation members. This includes those members with interrupted work patterns and low incomes – which disproportionately include women – as well as those who have inadvertently accrued multiple accounts.
The Exposure Draft legislation and supporting materials for the package are available on the Treasury website for public consultation. Interested stakeholders are encouraged to participate in consultation by 29 May 2018.
The Turnbull Government is committed to a superannuation framework that supports the retirement savings of all Australians.